Oil rigs are seen in Midland, Texas
Oil rigs are seen in Midland, Texas, in this file photo. Reuters

Crude oil futures rallied Monday as market participants welcomed Europe's plan to provide financial assistance to Spain to properly restructure its troubled banks.

Light sweet crude for July delivery surged 1.57 percent or $1.32 to $85.42 a barrel in electronic trading on the New York Mercantile Exchange during European trading hours. Brent crude oil futures for July delivery rallied 1.47 percent or $1.46 to $100.93 a barrel on the ICE futures exchange in London.

Euro zone finance ministers agreed Saturday to lend Spain up 100 billion euros to restructure its struggling financial intuitions, which eased the most immediate concerns over the financial crisis in the euro area.

The aid is more than double the 40 billion euros of the new capital that the International Monetary Fund had estimated the banks needed and could add up to 10 percentage points to Spain's debt ratio.

Spain has become the largest and fourth economy in the 17-nation euro zone to require a financial aid after Greece, Ireland and Portugal. However, unlike three other nations, Spain's bailout is only for its banking sector, not for the economy as a whole.

However, Spain's prime minister Sunday said that despite the financial support, the country would continue to suffer from high unemployment and shrinking gross domestic product.

Nobel Prize-winning economist Joseph Stiglitz said that Europe's plan to lend money to Spain to heal some of its banks might not work because the government and the country's lenders would in effect be propping each other up, Reuters reported.

Reports that talks between the International Atomic Energy Agency (IAEA) and Iran in the weekend failed also lifted the oil prices. The U.N. nuclear agency announced Friday that that it had failed to reach any agreement with Iran on resuming a long-stalled investigation into suspected atom bomb research by the Islamic state. The failure of the eight-hour talks at the IAEA headquarters in Vienna is seen as an impediment to the dialogue between Iran and P5+1 later this month.

Meanwhile, a less worrying set of economic data out of China over the weekend also added to the sentiment. Industrial production in May was lower than expected on annual basis but notably picked up compared to previous month while both imports and exports reported double digit growth in May. Exports rose 15.3 percent in May from a year earlier, which is up from 4.9 percent in April. On the down side, fixed asset investments and retail sales edged down.